Why structural economic change must happen now

The National Development Plan, considered as the blueprint for South Africa’s socio-economy, envisages an economic growth rate of 5%, by the year 2030.  In essence, this is the economic growth rate required for the government to effectively create sustainable jobs, eradicate the wide-spread poverty and transform society. 

However, South Africa continues to face massive challenges, especially concerning achieving sustainable and inclusive economic growth.  Most economists forecast GDP growth for 2020 to be 1.4%, which is, unfortunately, nowhere close to the country’s potential economic growth rate of 3%.  Amidst low economic growth rates, the South African economy is confronted with a significantly higher unemployment rate (29.1%), rising sovereign debt levels (71.3% of GDP over the medium term) and a R97.9 billion shortfall in tax revenue for the full year 2019/20.

To address some of these challenges, government’s decisive structural reform agenda should include; the design of fiscal measures to enforce adherence to strict spending limits; development of economic interventions to boost the economic growth; and reforms of public enterprises that focus on stronger governance and expenditure efficiency is indispensable in this regard.

Below are some of the structural reforms and interventions that I believe can boost job creation and economic growth:

Sound integrated economic growth policy:
The government needs to craft a renewed integrated economic growth policy framework to address policy uncertainty. The framework should outline the growth path and issue an economic growth mandate to all government departments, state-owned entities, and private businesses.

Capacitation and support of small medium micro enterprises (SMME’s):
Through a) access to adequate and patient capital, b) infrastructure development that gives entrepreneurs access to foreign markets and c) co-ordinated business capacity building programmes.

Furthermore, SMME’s that conduct business with the government must be paid within 20 working days to boost their cash flow. This must be a policy stringently enforced and monitored by the national treasury. 

Budget reform:
Resource allocation at the national government level must be guided by a technical process, inclusive of needs and impact assessments (i.e. both social and economic impact), and sound business cases to avoid inefficiencies in government spending.

Social compacting:
Key performance agreements should be established via the National Economic Development and Labour Council (NEDLAC), where government, labour, and private business set clear targets about employment, infrastructure development, investment, policy implementation, government spending, and new sector developments.

Township and rural economy development:
The development of rural and township economies is essential for economic inclusion and poverty reduction (i.e. government must unlock the potential of local SMMEs, cooperatives and enterprises through special economic zones).

Investing in the knowledge economy:
There is an urgent need to expand the state’s research capacity to drive the knowledge economy through formalised partnerships with private companies, universities, and research institutions.

Efficiencies in service delivery:
Introduce a shared services model across government to exploit economies of scales and to ensure efficiencies in government spending. Furthermore, a review of all government programmes needs to be conducted, to shut down non-performing programmes.

Closing the gender-gap:
Deliberate empowerment of women through gender-based budgeting and legislated women representation in all leadership structures; both in business and government.

Financial inclusion:
Including the informal sector into the mainstream economy through technology, capacity building and infrastructure development (i.e. access to capital, POS systems, banking services as well as storage and trade facilities).

Moreover, using its Prudential Authority, the state needs to enhance and promote competitiveness by issuing more licenses in monopolistic industries like telecommunications, energy, banking, insurance, and the stock exchange. 

There is also scope for the establishment of a state bank that will provide previously disadvantaged groups access to assets at an affordable rate (for example, business loans, property, investment instruments).

Youth employment and empowerment:
Given the country’s massive youth and structural unemployment, legislation which requires businesses to reduce the high barriers to entry for entry-level jobs must be introduced (i.e. years of experience).

Strengthening regional trade and integration:
A study by the OECD highlights that intra-regional trade in the Southern African Development Community (SADC) is only 10% of total trade, compared to about 25% in the ASEAN region, or 40% in the European Union. Therefore, there is an urgent need to improve the country’s export capacity and competitiveness, particularly in the tertiary sector through a renewed focus on value addition in sectors such as mining and manufacturing.

The successful implementation of these reforms is highly dependent on a strong, meritorious and entrepreneurial state that is willing to work in collaboration with all sectors of society.

Tshepo Moloi is an Economist with work experience from the National Treasury and the South African Reserve Bank. He holds a Masters of Commerce degree in Economics from the University of the Free State as well as a Masters in Public Administration and International Development from the University of York (United Kingdom). His areas of specialization include public finance, financial inclusion and macroeconomic policy analysis. Tshepo’s research work has been published in renowned local and international journals such the South African Journal for Economics as well as the Public Library of Science (PLOS).